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2003 Supreme(Bom) 364
IN THE HIGH COURT OF BOMBAY
Radhakrishnan S. Karnik D.G., JJ.
State Bank of India others .... Appellants.
Versus
Alstom Power Boilers Ltd. others.... Respondents.
Appeal No. 1116 of 2002 (From Company Petition No. 337 of 2002) with Appeal (L) No. 953 of 2002 (From Company Petition No. 338 of 2002), decided on 21-3-2003.
Advocates appeared :
Gulam Vahanvati A.G. with Chetan Kapadia i/b. Dhruva Co., in Appeal No. 1116/2002, for appellants.
Aspi Chinoy, Sr. A. i/b. Crawford Bayley Co., in Appeal No. 1116/2002, for respondent No. 1.
Milind Vasudeo i/b. Gagrat Co., in Appeal No. 953/2002, for appellants.
Aspi Chinoy, Sr.A., Rohit Kapadia, Sr.A., i/b. Crawford Bayley Co., in Appeal No. 953/2002, for respondent No. 1.
Preference shareholders are not entitled to attend and vote at the meeting of creditors convened under section 391 of the Companies Act even though dividend on the preference shares have remained unpaid for more than 2 years.
Headnote:
COMPANY - Scheme of Arrangement - Sanction - Classification of Preference Shareholders - Right to Vote - SICA - Applicability - Latest Financial Position - Fairness of Scheme - Swap Ratio.
Fact of the Case:
The transferor company (APBL) and the transferee company (APIL) proposed a scheme of arrangement for merger. The scheme was approved by the requisite majority in the meetings of the equity shareholders, preference shareholders, and creditors of both companies. However, some preference shareholders, including the Government of India, and an equity shareholder of APIL opposed the scheme. They contended that the Government of India, as a separate class of preference shareholders, was not properly represented in the meeting of preference shareholders; that the Government of India was entitled to vote in the meeting of equity shareholders and creditors as dividend on preference shares was unpaid for more than two years; that the scheme was in the nature of modification of the terms and conditions of the scheme of Rehabilitation sanctioned by the BIFR, which was impermissible; and that the scheme was unfair to the preference shareholders and equity shareholders of APBL as the swap ratio was too low.
Finding of the Court:
The Court held that the Government of India did not form a separate sub-class amongst the class of preference shareholders and that the terms offered to the Government of India and other preference shareholders were identical. The Court also held that the Government of India was not entitled to vote in the meeting of creditors as preference shareholders are not entitled to attend and vote at the meeting of creditors convened under section 391 of the Companies Act even though dividend on the preference shares have remained unpaid for more than 2 years. The Court further held that the scheme was not in the nature of modification of the terms and conditions of the scheme of Rehabilitation sanctioned by the BIFR as the company had ceased to be a sick company and was no longer monitored by the BIFR. The Court also held that the scheme was fair and just to all concerned and that the swap ratio was not too low.
Issues: 1. Whether the Government of India, as a separate class of preference shareholders, was not properly represented in the meeting of preference shareholders? 2. Whether the Government of India was entitled to vote in the meeting of equity shareholders and creditors as dividend on preference shares was unpaid for more than two years? 3. Whether the scheme was in the nature of modification of the terms and conditions of the scheme of Rehabilitation sanctioned by the BIFR? 4. Whether the scheme was unfair to the preference shareholders and equity shareholders of APBL as the swap ratio was too low?
Ratio Decidendi: 1. The Court held that the Government of India did not form a separate sub-class amongst the class of preference shareholders and that the terms offered to the Government of India and other preference shareholders were identical. The Court also held that the Government of India was not entitled to vote in the meeting of creditors as preference shareholders are not entitled to attend and vote at the meeting of creditors convened under section 391 of the Companies Act even though dividend on the preference shares have remained unpaid for more than 2 years. 2. The Court held that the scheme was not in the nature of modification of the terms and conditions of the scheme of Rehabilitation sanctioned by the BIFR as the company had ceased to be a sick company and was no longer monitored by the BIFR. 3. The Court held that the scheme was fair and just to all concerned and that the swap ratio was not too low.
Final Decision: The Court dismissed both the appeals and upheld the sanction of the scheme of arrangement.
KARNIK D.G., J.:---These appeals are directed against the common judgment and order dated 31st October, 2002 passed by the learned Single Judge in the Company Petition No. 337 of 2002 and the Company Petition No. 338 of 2002.
2.The Company Petition No. 337 of 2002 arose out of the Company Application No. 116 of 2002 filed by Alstom Boilers Private Limited (for short "ABPL" or the transferor company) and the Company Petition No. 338 of 2002 arose out of the Company Application No. 117 of 2002 filed by Alstom India Limited (for short "APIL" or the transferee company). Three companies namely (i) Alstom Transport Limited (ii) Alstom Systems Limited and (iii) APBL belonging to the Alstom group sought to merge with another group company viz. APIL under the scheme of arrangement which is challenged in this appeal. The scheme of arrangement of the two transferor companies namely Alstom Transport Limited and Alstom System Limited having their registered offices in Delhi has already been approved by the Delhi High Court. APBL and APIL have their registered offices within the State of Maharashtra and therefore, the approval of this Court was sought by the aforesaid two company petitions.
Re the Meetings of APBL (Transport Company)
3.Initially, Company Application No. 116 of 2002 was filed by APBL for directions of this Court to convene the separate meetings of the equity share holders, the preference share holders, the secured creditors and the unsecured creditors of the transferor company. By an order dated 22nd February, 2002, this Court passed an order convening four separate meetings as above in the same manner as proposed by the company. As there were more than one type of preference shares issued by it at different times at different rates of dividend with different dates of maturity while granting ex parte request of the company to convene a single meeting in respect of all the preference share holders, this Court observed :
"The issue as to whether different preference share holders form a same class or not is expressly kept open in view of the judgment of the Honble Supreme Court of India in the cases of (Miheer Mafatlal v. Mafatlal Industries)1, reported in A.I.R. 1997 Supreme Court Page 504 (Point No. 4)."
4.In pursuance of the directions given by this Court by the aforesaid order dated 22nd February, 2002 in Company Application No. 116 of 2002, APBL convened four separate meetings of equity share holders, preference share holders, secured creditors and unsecured creditors on 28th March, 2002 to consider the scheme of arrangement. The meeting of equity share holders was attended by 22 shares holders holding 2,53,94,336 shares of the value of Rs. 2,53,94,360/-. All but one, whose vote was declared invalid, cast their votes in favour of the scheme. At the meeting of the preference share holders, all the preference share holders holding 3,73,00,000 shares of the value of Rs 3,73,00,000/- voted in favour of the scheme. At the meeting of the secured creditors, six secured creditors having credit of Rs. 9,04,46,353 were present and all including SBI voted in favour of the scheme. At the meeting of the unsecured creditors, 86 unsecured creditors of the value of Rs. 30.79 crores were present. 85 unsecured creditors of the value of Rs. 30,74,96,612 voted for the scheme and one unsecured creditors of the value of Rs. 4,48,090 voted against. Thus, the scheme of arrangement proposing merger of transfer of APBL with APIL was approved in all the meetings by an overwhelming majority of more than 98% in value and number of the shareholders and/or creditors attending in each case.
Re the meetings of APIL (Transferee Company)
5.APIL moved the Court by the Company Application No. 117 of 2002 for directions to convene separate meetings of the equity share holders and the unsecured creditors of the company for consideration of the scheme of arrangement. By an order dated 22nd February, 2002 this Court directed convening of the separate meetings o
